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Answer:
Dear M. Johnson,
Picking dividend payers certainly can be a solid way to build up a diversified portfolio. But there’s one caveat here.
You should select only stocks of companies that are well managed and that are industry leaders – advice you’ve seen mentioned a number of times in this column. Companies that have consistently paid shareholders dividends are generally well financed; that is, they have sufficient cash flow to meet their quarterly dividend payments and often to raise their payouts.
I recommend that you look at the various dividend indexes run by Dow Jones & Company (see below). They reflect the performance of leading dividend-yielding stocks. You won’t find this to be simplistic! They include foreign stocks.
Begin by checking out the companies that currently make up the index and then second, track changes in the composition of the index. When a stock is taken off an index, it may indicate that it is not performing as well as it was when initially placed on the index. Or, it may simply mean that the stock replacing it is stronger.
You may decide to use these composition changes as buy or sell signals for your portfolio.
The Indexes
The Dow Jones U.S. Select Dividend Index, which measures the 100 leading U.S. dividend paying companies, was the first dividend-based index offered to the public.
Dow Jones then added global indexes as well as regional indexes for Europe, Asia and the Americas. Next came the country specific indexes -- for Australia, Canada, France, Germany, Italy, Japan, the Netherlands, Spain, Sweden, Switzerland, the U.S. and the U.K.
Three indexes that have been in the news recently because some companies were dropped and new ones were added are:
The Japan Dividend 30 Index
The U.K. Select Dividend 20 Index
The Global Select Dividend 100 Index
For a full list and to track the changes, go to www.djindexes.com.
Good luck!
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